Tesco's big guns set to start 'store wars' with Aldi and Lidl

SHOP TILL THEY DROP: Tesco are to take up arms against Aldi and Lidl — by cutting costs [PA]

Leading shareholders expect Lewis, who will take control of the supermarket giant tomorrow, to wage war on Aldi and Lidl.

The discount supermarkets have been eating into its market share in recent months.

City analysts think at least £1.5billion will be pumped into cutting prices at Britain's largest retailer.

One shareholder said: "Tesco's previous price cuts were too selective. This time round they will take the discounters on, using the cash to fund across-the-board price cuts."

“We are confident Tesco will be able to restore its standing with customers”

Dave Lewis

In February, Tesco said it would allocate £200million to reducing prices.

But that has failed to stop its decline, with Tesco on Friday issuing its second profits warning in two months.

It cut its full-year profits forecast to £2.4billion from £2.8billion and slashed its interim dividend by 75% or £600million, in addition to cutting its annual investment by £400million.

Michael Clark, portfolio manager at Fidelity, which holds a significant stake in Tesco, said: "While the profit reduction and the dividend cut are painful in the short term we recognise the new management needs flexibility."

Another shareholder used the example of France, where the country's largest supermarket Carrefour won back customers after slugging it out with discount rivals.

He said: "Tesco had to do something. Cutting the dividend and investment was a surprise but it gives Lewis room to work. If you look at France and the likes of Carrefour, they all suffered due to the discounters but now they are winning back market share with price cuts."

Asda and Morrisons have already announced billions of pounds worth of price cuts.

Lewis, who has been parachuted into his role a month early from Unilever, will also begin a strategic review of Tesco's global operations. Fidelity's Clark has backed Lewis to return Tesco to its former glory. He said: "We are confident Tesco will be able to restore its standing with customers and create value for shareholders."

Although good news for consumers, the prospect of a renewed price war sent shares lower in the supermarket sector last week. Tesco declined to comment.